Banking Competition and Banking Stability in SEM Countries: The Causal Nexus

Abstract

The study tries to evaluate whether banking competition impacts the banking stability in the case of 32 Single European Market countries, and whether a guiding principle focus on banking competition is appropriate as a loom to boost banking stability. This study finds the interactions between banking competition and banking stability in 32 European countries between 1996 and 2014 with a panel vector auto-regressive model. Our observed results show that there is a cointegrating relationship between the two. Moreover, banking competition is a causative factor in banking stability in the long run. Thus, a focus on banking competition will enhance the banking stability of these countries.